Question
Chief Wiggams has $6. Each doughnut costs $0.45 if bought individually, but a half-dozen costs just $2 and a dozen costs $3. If he buys
Chief Wiggams has $6. Each doughnut costs $0.45 if bought individually, but a half-dozen costs just $2 and a dozen costs $3. If he buys 1 doughnut, how much money is left over? If he buys 2 doughnuts? 3? 4? etc. Graph the budget constraint for doughnuts and money remaining (to buy other stuff), with doughnuts on the horizontal axis and money remaining on the vertical. Label every economically meaningful point in the diagram. What conclusions can we draw about the Chief's optimal choice? Are there rational indifference curves that would lead him to buy 11 doughnuts?
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